Washington: ITT Educational Services Inc filed for bankruptcy after closing 136 technical schools, leaving over 35,000 students stranded in one of the largest college shutdowns in US history.
The 50-year-old for-profit college operator, which had campuses in 38 states, said it was forced to close its doors after the US Education Department demanded a steep increase in the security the company would have to post to guarantee federal student aid. More than 8,000 employees were affected, with the majority losing their jobs on September 6, Carmel, Indiana-based ITT said.
Since August 2014, ITT has been under financial and operational scrutiny by the US Education Department. The agency expanded its oversight in June, citing “significant concerns about ITT’s administrative capacity, organisational integrity, financial viability and ability to serve students.”
The US Securities and Exchange Commission brought fraud claims against ITT and two executives in May 2015 for allegedly concealing major losses in two student loan programmes. That lawsuit is still pending in an Indianapolis federal court.
The Consumer Financial Protection Bureau sued the company in 2014, accusing it of overstating students’ job prospects and potential salaries and then pushed them into high-cost private loans that were likely to end in default. That case is also still pending in Indianapolis.
ITT listed assets and debt of $100 million to $500 million each in a Chapter 7 filing on Friday in bankruptcy court in Indianapolis. Chapter 7 is the section of the Bankruptcy Code that covers liquidation proceedings.
A unit of Cerberus Capital Management told ITT this month that it was in default on a senior secured loan and demanded immediate repayment of the $34.5 million outstanding. The lender also exercised its control over ITT’s bank accounts, having any remaining cash balances transferred to Cerberus, according to a September 14 regulatory filing.
In August, an accreditation board found that ITT didn’t meet its standards and wasn’t likely to comply. The Education Department barred the school from enrolling new students who rely on federal financial aid and required the company to increase its surety from $94.4 million to $247.3 million, almost double ITT’s available cash.
ITT isn’t the first big for-profit college operator to wither under government scrutiny. Corinthian Colleges Inc collapsed after the Education Department reduced its access to federal student aid, eventually finding that the company had falsified job-placement figures. Corinthian sold about half its campuses in late 2014 and closed the rest in April 2015 before filing for bankruptcy the following month. It had more than 74,000 students and 10,000 employees as of March 2015.
Students who were enrolled at ITT’s eponymous technical schools or who had withdrawn in the previous 120 days have two options, Education Under Secretary Ted Mitchell said during a September 6 press call about the shutdown. Those who don’t transfer their credits can apply to have their federal student loans discharged under a government programme, while those who complete “comparable” studies elsewhere generally wouldn’t have their loans discharged, Mitchell said.
If every student files for a closed-school loan discharge, the payout could be as high as $478.8 million, according to the Education Department. ITT has put up $94.4 million to defray taxpayer liabilities.
The case is ITT Education Services Inc, 16-07207-7A, US Bankruptcy Court, Southern District of Indiana (Indianapolis).